The word "efficient" in the term "efficient markets hypothesis" refers to the idea that
A)fundamental analysis is an efficient way to go about choosing which stocks to buy or sell.
B)stock prices move upward and downward "efficiently," rather than following a "random walk."
C)the stock market is "informationally efficient."
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The term "efficient" in the efficient markets hypothesis refers to the idea that the stock market is "informationally efficient," meaning that all publicly available information is already reflected in stock prices. This suggests that it is difficult, if not impossible, to consistently make profits through fundamental analysis or stock selection techniques. Option A is incorrect because the efficient markets hypothesis suggests that fundamental analysis is not an efficient way to choose stocks. Option B is incorrect because the hypothesis argues that stock prices move randomly, rather than efficiently in the sense of moving up and down in a predictable pattern. Option D is incorrect because while fundamental analysis may be part of a stock selection strategy, it does not necessarily make the market inefficient.

The Word "Efficient" in the Term "Efficient Markets Hypothesis" Refers